Singapore Accounting Standards: what is financial reporting?

You should always keep in mind that the state of a company’s finances is of interest to current and future investors and employees, lenders, suppliers, and other stakeholders. If the company has a public responsibility, it is legally required to publish financial reports. In this case, the public and the company’s private investors will also be interested in the financial statements.

In order to keep all parties informed, the company must present its general-purpose financial statements. They should contain information about the company’s performance, position, and cash flows. Therefore, they contain all the essential facts about the financial decisions that affect the company. Depending on what stakeholders find in the financial statements, they will either make favorable decisions or stay away from the company and its business relationships. Therefore, financial statements should be as clear as possible.

What are Singapore's accounting standards?

You really need to know that in Singapore accounting standards are known as Singapore’s Financial Reporting Standards and are based on IFRS. This set of accounting standards contains over 40 sections. They cover topics such as financial statement presentation, inventory accounting and revenue recognition.

One of the most important principles of Singapore accounting standards that you should be aware of is the accrual basis of accounting. This method makes your books more representative of the company’s profitability and gives you a better understanding of the company’s assets and liabilities at the end of an accounting period. The accrual method tracks revenues earned and expenses incurred when they occur, not just when transactions are made.

In contrast, under the cash basis framework, revenues are not reflected in the income statement until they are received in the bank or expenses appear in the bank. Under the accrual basis of accounting, revenues are shown on the income statement when they are earned. Expenses appear on the income statement when they match revenues. This way you will know which costs lead to which revenues. If some of your expenses do not directly generate revenue, you will see that.

What are the Singapore Accounting Standards for Small Businesses?

Initially, in order to ease the reporting burden of small companies, the IFRS Foundation developed the simplified version of the International Financial Reporting Standards for Small and Medium Enterprises. In 2010, Singapore introduced its own financial reporting standard for small entities.

As a second step, both a company incorporated in Singapore and a Singapore branch of a foreign company may apply the Singapore Accounting Standards for Small Entities. A subsidiary of a holding company may also adopt it. To use this framework, the most essential thing for the entity is to have the following characteristics:

➤ Not be publicly accountable
➤ Publish public interest financial statements
➤ Be small in size

It should be noted that to be considered as “small”, the company must necessarily meet at least two of these criteria:

➤ Total annual revenue is less than S$10 million
➤ Total gross assets are less than S$10 million
➤ The company has 50 or fewer employees

Finally, Singapore’s Small Entity Accounting Standards are the best option for startups and business entities that do not present their financial statements to external parties.

What are Singapore Financial Reporting Standards?

How do you make a transition from Singapore Accounting Standards to Smaller Entities?

Firstly, any new company that qualifies for Singapore Accounting Standards for Smaller Entities uses this simplified framework until it exceeds the size threshold and remains in this position for two consecutive reporting periods. In addition, the company will have to upgrade to the full version, Singapore Accounting Standards.

Secondly, a company that is about to outgrow the Singapore Financial Reporting Standards for Smaller Entities must start preparing for the transition in advance. They will need to train their employees and purchase extensive software if the accounting team is in-house. If the accounting is outsourced, they need to ensure that the service provider has the qualified staff to meet the new requirements. In all cases, the transition must be well prepared.

Finally, in some cases, it may be reasonable for small companies to adopt the Singapore Accounting Standards framework while they still qualify as small entities. The first situation is where the company is part of a holding company where Singapore Financial Reporting Standards is already used. The second situation is where a company is dealing with financial institutions and lenders who wish to obtain full Singapore Accounting Standards financial statements.

Is it important to have a Singapore accounting firm?

A Singapore accounting firm can also be a valuable alliance when it comes to staying in compliance with other ACRA or IRAS regulations, such as publication requirements, certification and auditing, accounting reports and tax year.

Firstly, an income statement and financial statement must be prepared and submitted by each company. Relevant accounting and bookkeeping records must be retained for five years after the end of the business year of each transaction.
Companies can choose their fiscal year, but audited accounts must be filed with ACRA on an annual basis. A company is required to keep certain records in addition to the accounting records, such as records of major shareholders, debenture holders, and nominee directors.

In addition, for foreign corporations, the financial statements must be filed within two months of the date of the Annual General Meeting of the head office, or within seven months of the fiscal year end if no Annual General Meeting is required in the place of incorporation.

Secondly, unless exempted, a company is required to have an audit of its financial affairs conducted by an auditor. Dormant companies and small companies that meet the ACRA qualification criteria for audit exemption are exempt from the statutory audit requirement.

Thirdly, accounting reports are for income tax returns, profit and loss accounts and balance sheets.

Finally, the calendar year is also called the tax year. The assessment of income for the tax year is based on the income from the previous calendar year. However, IRAS allows companies with non-calendar year ends to use the accounting year as the base year.

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